Triple Net Lease Properties:
Under triple net lease properties the tenant takes on the responsibility of the property. This includes maintenance, repairs, direct payment of real estate taxes and insurance. As the owner or landlord has little responsibility towards the property. Investing in a triple net lease property is especially attractive when the landlord resides hundreds of miles away.
We have commercial loan products are specifically designed for single tenant NNN leased properties. Some investors wish to have the loan fully retire over the primary lease term. Other investors prefer to maximize the cash flow resulting in a balloon balance.
How will a lender view a loan that calls for a balloon balance? The lender will start with analyzing the financial strength of the tenant. The lender uses this financial information to determine how likely will the tenant be around to fulfill its obligation under this NNN lease? Next the lender will estimate the value of the underlying real estate at the end of the lease. The lender will assume the tenant will vacate the property at the end of the lease term.
Dark or Vacant Value:
To assess the dark value a lender will estimate the costs to retrofit the improvements for a replacement tenant. For example, assume a large warehouse that goes dark. This warehouse has features in demand,,,,,,,,,,, the structure may require very little in the way of retrofitting. While a former 7-11 convenience store may require substantial work to make the building attractive for a new tenant. Therefore, the lender will estimate the residual value of the specific real estate in determining how much of a balloon balance risk they might be willing to accept.
How large of a balloon balance will a lender allow? The answer is not a simple percentage or dollar amount. For example, a well located warehouse building located in a prosperous industrial sub-market in a major city will be favored over a dark Dollar General store in a rural community. To help with this assessment, ask yourself what would you be willing to pay for the specific dark (vacant) building 10, 15 or 20-years from now. Assuming the roof, parking lot and mechanical systems have aged along with the rest of the structure. Take that amount and reduce it by 40% and you might be close to what a lender might consider as a balloon balance.
One day loan quotes:
Investing in Triple Net Lease Properties speed is often a factor. We work with many 1031 Exchange buyers who are under very stringent time constraints. Normally, loan quotes are obtained within one business day.
The lender might be an insurance company, pension fund, REIT, Specialty Bank, or a Wall Street firm (CMBS). Loans over $1 million are often non-recourse, fixed rates with amortizations to match the primary lease expiration or a balloon balance as mentioned above. We have a simple calculator that could assist in determining the net cash flows and balloon balance. Just call or email and we will for this Excel model to you.
Check out our web site under Current Rates for sample rates for NNN lease properties.
How to determine if a tenant carriers investment grade credit ratings? Standard and Poors as well as Moody’s offer free access to the corporate ratings. You will simply need to register with each of these firms. Just because a company does not have credit ratings with one of the major credit rating reporting companies does not mean the company is not financially strong. If they are publically traded you should be able to pull up their most recent financial reports as reported to the Securities and Exchange Commission (SEC). We use Free Edgar to access this data.
In conclusion, if you have a question about a property or tenant just call or send of the details of the loan request via email so we will help you with the assessment. We work for you!